A share price chart is a waste of time
That is if it tells you something you already know.
Before I get into that, I have a question. Do you have an umbrella with you? Yes? No? For either answer, the reason behind it is probably the same. At some point today, whether from an app, local news, or shaman, you were informed it is likely (or not) to rain.
This is useful to know and is why weather.com receives around 100 million visits a day.
But if weather.com only told you what the weather was like right now, that’s not nearly as useful. That’s partly why we have windows.
To me, this is the equivalent of including a share price chart in a pitchbook. It's not new information and doesn't provide any additional insight.
Over the past twenty years, I’ve worked on and presented thousands of pitchbooks, and about 99% of them included a share price chart, just hanging out there, stating the obvious.
I’ve often questioned the use of a vanilla share price chart and have concluded it’s used out of habit rather than purpose. And don’t worry, this isn’t a post promoting the perspicacity of chartists. I’m more likely to turn to the aforementioned shaman first.
Anyway, think about it from the perspective of CFOs. They know their company’s current share price. In fact, they know more about the movements of the company than any banker ever will. So why tell them something they already know?
But, if you shift the chart to focus on future share price, you offer a new perspective. The below chart shows this by melding known history with an uncertain future.
The traditional share price chart axis is extended a year, and the potential future distribution outcomes are plotted using a fan chart. The expected path of the stock price is estimated using expected returns and the uncertainty, or the ‘fan’, is simulated by the implied volatility.The deeper the color intensity in the fan, the greater the probability.
To CFOs, adding this foresight communicates two things. 1. You understand the challenges they live daily and 2. You can help them navigate these with smart strategic advice and execution alternatives. Indeed, you can help weather any future storms. Pun absolutely intended.
Try it out. You may find instead of just skipping past it, like usual, it will open up the conversation to something deeper. Let me know how it goes. Email me at email@example.com.
To come, more ways to enhance share price charts. Look out for these.